Gold, Silver, Metal Prices Commentary – September 2, 2010

Jobs and homes; the pivotal focus items by which many solely continue to gauge the state of the States’ economy, remained at the centre of this morning’s preoccupation among investors as well. Yesterday’s ISM data offered a bright spot and markets responded in kind.

The Dow had its best day in months (254 points were added to its value), and the US dollar sold off as some safe-haven seekers opted for riskier havens. Gold prices backed away from the $1,255.00 area to ease towards the $1,244.00 level, where they ended up closing last night’s session.

Such changes in sentiment however lasted but overnight, as investors greeted markets with another, double serving of doubt and gloom this morning. Jobs and homes. Having a job, buying or keeping a home. These are the metrics by which today’s judgments will be made and which will move markets. However, in essence, the chances of the USA skirting the double-dip event are actually fairly decent. Why, you ask?

Part of the reason, at least according to the tea leaf readers at BofA Merrill Lynch, is that the string of data that has unnerved everyone from the Fed to John Q. Public has already proven to be so dismal that there is largely no more room to the downside (for such numbers to go). Thus, BA/Merrill places the odds for a DD at 25% for the next 12 months, at the moment. In addition, with the markets so emphatically pricing in the inverse of such odds, any surprise to the upside could be pretty nasty for the doomsayers.

At any rate, the odds of a DD were summarily dismissed by ECB head Jean-Claude Trichet this morning, even as he left interest rates unchanged at 1% -just-in-case, until year’s end. Mr. Trichet also opined that he is not distressed with economic reports coming from the US inasmuch as the ECB at least did not expect to learn about ‘extraordinarily dynamic growth’ taking place there at this time.

 Another central banker, Mr. Benrnanke, on the other hand, offered a different kind of hindsight today: he said that the single most important lesson he (and presumably the Fed and other authorities) have learned from the crisis is the need to do away with the ‘too big to fail’ mentality.

None of the above stopped gold from opening with a fresh, $5 gain this morning. The spot price was bid at $1,249.40 on account of predominant physical buying by funds (and a small, $0.20 contribution to the price gain, courtesy of a further 0.11 drop on the index in the greenback).

Later in the session, gold drew nearer to yesterday’s $1,255 area but once again retreated to the $1,250.00 level. Judging by both gold and the Dow, the waiting game is all about Friday’s figures on the jobs front at this point. That number, plus pre-long-weekend book-squaring jousts will likely make for a fun Friday for some markets.

Sorties by shoppers to souks in the Middle East were rather scarce in August, as the observation of Ramadan took place. Sales of gold in Dubai and Abu Dhabi fell by 15% for the month. General gold demand in the region during the second quarter was a mixed bag, with Saudi Arabia showing a 5% percent gain, whilst the UAE’s gold sales dropped by 15%.

The same, pre-data-fueled rise was evident in the rest of the metals complex as well. Silver added 14 cents, rallying to but one penny short of $19.50 the ounce. Platinum (go figure) gained $19 the ounce and opened at $1,550.00 following the revelation that US auto sales careened towards a ditch, in their worst August in 27 years.

Toyota and Honda’s US outlets posted sales declines in excess of 30% last month, while both GM and Ford saw an 11% drop in sales. Not so, the case for GM Canada; its sales were up 8% in what amounted to the best August level in two decades. Automaker Chrysler…dodged a bullet in the US, posting a 7% gain in August sales.

Experts attribute much of the contraction in US auto sales to the absence of C-4-C car buying stimulus schemes from the scene. Palladium rose $3 to start at $520.00 per ounce. If one needed more evidence of speculative fund-type footprints in this sector, well, there it was in oodles this morning.

While US consumers clearly kept a distance from automobile showrooms last month, they still went shopping. With the calendar evidently continuing to march forward, school time almost knocked on the door and throngs of docile parents headed to Costco, Hot Topic, Zumiez, The Limited, Wet Seal, and at least another six retail chains and made for better-than-anticipated beep counts at cash registers last month.

US initial jobless claims filings fell by a relatively modest 6,000 in the latest reporting period, bringing the total to 472,000. Meanwhile, the four week average of initial filings (normally thought to be a better metric of labour market conditions than the weekly figure) also declined. This decline was not exactly what the safe-haven flavoured markets expected this morning. Remember, they thrive on terrible, horrible, no good, very bad kind of news.

These days however, with nerves, greed, fear, and other such impact factors being at extremes, even modestly negative news can do the trick. To wit, the downward revision in US second quarter productivity. It (and the fact that the drop in jobless claims was not seen as ‘good enough’) was probably enough of a catalyst to shove the jobless claims figures out of the way and reignite the quest for certain assets (metals) but not others (stocks) while the dollar just treaded water.

It (the fear/greed combo) was also the reason why things turned the other way after the release of pending home sales figures (up 5.2% in July) and US factory data. Every nuance of every little number is enough for exaggerated moves in this environment of ‘unusual uncertainty’ (even if not everything in the world — not even remotely — hinges on the slightest sneeze or sigh coming from the US economy).

Consider for a moment that the entire continuing unemployed segment in the US totals 4.4 million souls. That number is only half a million higher than that currently seen in Spain; a country for which, the 3.9 million figure amounts to an unemployment level of 20%. "Bad" is — at best — a relative notion.

Then again, so are ‘slow’ and ‘sufficient’ and any other adjective being used to characterize anything to do with the economy and the recovery. Instant gratification wants things ‘now’ and ‘fast’ and ‘big.’ One of the reasons that this last recession was, and is, still, ‘unacceptable’ to markets and to investors. And also one of the reasons the Fed had, to and is still expected to, do ‘whatever it takes.’ There is no room for pain among today’s entitlement-imbued investors.

Until tomorrow,

Jon Nadler
Senior Analyst

Kitco Metals Inc.
North America 

Original article link: Autos Stall, Jobless Fall, Home Sales Crawl

Editor’s Note: Meet the Kitco Team at the upcoming Kitco Metals eConference September 12-13, 2010. A not-to-be missed event featuring Ron Paul, Marc Faber and other industry heavyweights. The eConference is free with Pre- Registration www.kitcoeconf.com.